Arbitrage,cointegration, and the joint dynamics of prices across discrete commodity futures auctions

Underlying the search for arbitrage opportunities across commodity futures markets that differ in market structure is the idea that the futures prices for similar commodities that are traded on different exchanges adjusted for differences in currency, delivery time (if any), location, and market structure are equal. This article examines price linkages in competing discrete commodity futures auction markets. We find no evidence of cointegration of futures prices of similar commodities traded on two contemporaneous discrete auction futures exchanges in Asia. We also find no evidence of arbitrage activities across these two Asian exchanges, though this does not preclude arbitrage activities with North American continuous auction markets. This lack of cointegration may be due to nonstationarities in the trading cost component. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 799–815, 1999     

Decreased price clustering in FTSE100 futures contracts following a transfer from floor to electronic trading

The issues of price clustering and electronic trading have triggered important recent debates, and generated interest from regulators due to their potential implications for market quality, stability, and fairness. This paper brings together these issues by examining whether price‐clustering behavior differs following a transfer of futures contracts from open outcry trading to an electronic system. The results are unique in demonstrating a structural change in price clustering following the move to automated trading, with the level of price clustering dropping from around 98.5% of prices at even ticks under floor trading to approximately 75% under electronic trading. Such a change in pricing behavior amounts to a reduction in the effective tick size, and is an important factor in reducing observed bid‐ask spreads. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:647–659, 2003     

The impact of electronic trading on bid‐ask spreads: Evidence from futures markets in Hong Kong,London, and Sydney

During 1999 and 2000, three major futures exchanges transferred trading in stock index futures from open outcry to electronic markets: the London International Financial Futures and Options Exchange (LIFFE); the Sydney Futures Exchange (SFE); and the Hong Kong Futures Exchange (HKFE). These changes provide unique natural experiments to compare relative bid‐ask spreads of open outcry vs. electronically traded markets. This paper provides evidence of a decrease in bid‐ask spreads following the introduction of electronic trading, after controlling for changes in price volatility and trading volume. This provides support for the proposition that electronic trading can facilitate higher levels of liquidity and lower transaction costs relative to floor traded markets. However, bid‐ask spreads are more sensitive to price volatility in electronically traded markets, suggesting that the performance of electronic trading systems deteriorates during periods of information arrival. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:675–696, 2004     

A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category

We develop an empirical model for the adoption process of a new durable product that accounts for consumer heterogeneity as well as consumers forward-looking behavior. Accounting for heterogeneity is important for two reasons. As the mix of consumers with different preferences and price sensitivities could change over time, firms need to update their marketing strategies. Further, it allows for a variety of shapes for the aggregate adoption process over time. As prices for durable and technology products fall over time with firms continually introducing enhanced products, consumers may anticipate these prices and improvements and delay their purchases in the product category. Forward-looking consumers optimize purchase timing by trading off their utilities from buying the product and their expectations on future prices, quality levels, and brand availability. Such forward-looking behavior will result in price dynamics in the marketplace as price changes today influence future purchases. And it results in different shapes of the new product sales pattern over time by influencing the time to take-off. We show how the parameters of our model can be estimated using aggregate data on the sales, prices, and attributes of brands in a product category. We apply our model to market data from the digital camera category. Our data are consistent with the presence of both heterogeneity and forward looking behavior among consumers. At the product category level, we are able to decompose the effects of the entry of Sony into primary demand expansion and switching from other brands. At the brand level, we find that there exist several segments in the market with different preferences for the brands and different price sensitivities leading to differences in adoption timing and brand choice across segments. For a given brand, we show how the changing customer mix over time has implications for that brands pricing strategies. We characterize how price effects vary across brands and over time and how price changes in a given time period influence sales in subsequent periods. Model comparison and validation results are also provided.     

Night trading and market quality: Evidence from Chinese and US precious metal futures markets

Given a dominant exchange, how should other exchanges set their trading hours? We examine the introduction of a night session by the Shanghai Futures Exchange, allowing trading concurrently with daytime trading at the Commodity Exchange in the United States. After developing hypotheses, results for gold and silver show: trading activity has increased; liquidity in Shanghai has risen and prices are less volatile at market opening; the price discovery share of Chinese gold futures has fallen but this is not a sign of weakening market quality; and volatility spillovers increase bidirectionally. Longer trading hours have decreased market segmentation and increased information flow.     

Price matching and product differentiation strategies considering showrooming

Showrooming, a phenomenon in which customers use brick-and-mortar stores to assess products and then purchase them from online retailers (o-retailers) for lower prices, is considered a great threat to traditional retailers (t-retailers). To combat showrooming, many t-retailers have executed price matching which enables customers to pay o-retailers' lower prices for the identical product. To avoid direct competition with t-retailers who execute price matching, many o-retailers have begun to sell differentiated products from t-retailers, which weakens the information advantage to customers from practicing showrooming. Motivated by these observations, we construct a duopoly game, where a t-retailer and an o-retailer sell products in a same category, to study the profitabilities of product differentiation and price matching in the context of showrooming. The results show that in the scenario without price matching, the o-retailer is likely to benefit from product differentiation only when the o-retailer's differentiated product is more popular with customers than the t-retailer's product. However, in the price matching scenario, the o-retailer also has the opportunity to benefit from product differentiation when the o-retailer's differentiated product is less popular with customers than the t-retailer's product, and product differentiation can be a win-win strategy for the two retailers under certain conditions. Considering the o-retailer's product differentiation decision, the t-retailer is only likely to execute price matching if the non-digital attributes of the product category sold by two retailers are not very obvious.     

On commodity price limits

This paper examines the behavior of futures prices and trader positions around the occurrence of price limits in commodity futures markets. We ask whether limit events are the result of shocks to fundamental volatility or the result of temporary volatility induced by the trading of noncommercial market participants (speculators). We find little evidence that limits events are the result of speculative activity, but instead associated with shocks to fundamentals that lead to persistent price changes. When futures trading halts price discovery migrates to options markets, but option prices provide a biased estimate of subsequent future prices when trading resumes.     

Transitory real‐time property rights and exchange intellectual property

American exchanges own the price quotations they generate. Access to real‐time price information is highly valued by most market participants. This enables exchanges to exact royalties from the sale of such market information. In this sense, an exchange's ownership of its price quotations is akin to owning a property right in a perishable commodity (i.e., fresh market price quotations) that is most valuable for only a transitory or limited period of time. The implications of exchange ownership of price data extend beyond financial markets. Recently, Woodard (2000) has noted that some internet auction operators have asserted ownership over the prices they generate. This study reviews the legal origin and nature of the property right to price quotations generated on U.S. futures exchanges and assesses whether exchange ownership should be transitory. The legal basis for transitory real‐time (real and personal) property rights is discussed and the economic implications are considered. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:891–913, 2003     

Trading Mechanisms and Market Quality: Call Markets versus Continuous Auction Markets

On July 29, 2002, the trading mechanism in the Taiwan Futures Exchange (TAIFEX) was switched from an exclusive call market to a continuous auction market. Based upon several proxies of market quality, in the present study, we set out to empirically examine whether this switch has resulted in any significant improvement in market quality within the TAIFEX. We find that while the quoted spreads, effective spreads, and price volatility are all smaller in the continuous auction market, the call auction market exhibits greater market depth and smaller pricing errors; the latter is also found to be more effective in resolving the problem of information asymmetry. Overall, the results of the present study suggest that the choice between call and continuous auction trading mechanisms essentially involves trade‐offs between the bid‐ask spread, market depth, price volatility, information asymmetry costs, and price efficiency.     

Factors affecting farmers market produce prices in Missouri

Produce marketers who participate as farmers market vendors or otherwise directly market their goods should understand not only the location-related characteristics that affect consumer selection of local, fresh produce but also the product attributes that consumers prefer to find in local products. Understanding attribute-price relationships will allow marketers to better plan for value-added marketing opportunities. Using a hedonic pricing model, this study analyzed the influence that product attribute levels have on prices for seven types of produce: sweet corn, tomatoes, cantaloupe, cucumbers, green beans, bell peppers, and zucchini. Based on data collected from Missouri farmers markets, multiple attributes affect produce price variation. In the dataset, one of the strongest effects was exerted by sale location. The importance of this finding is that prices can be collected in a single location and extrapolated to other farmers market locations, which implies reduced search and reporting costs in collecting representative farmers market produce prices. Additionally, a higher weight may increase prices for some types of produce but decrease prices of others after a certain point. Farmers market vendors, as well as other direct marketers, can use attribute pricing information to identify the quality attributes that consumers prefer.     

浅析套期保值中棉花套利的应用

套保套利是指以规避现货价格风险为目的的期货交易行为.企业开展套保套利交易,是将期货市场当作转移价格风险的场所,利用期货合约作为将来在现货市场上买卖商品的临时替代物,对其现在买进但准备以后售出的商品或对将来需要买进的商品的价格进行"锁定"的交易活动.套保套利的本质在于"风险对冲"和"风险转移".     

Hedging under the influence of transaction costs: An empirical investigation on FTSE 100 index options

The Black–Scholes (BS; F. Black & M. Scholes, 1973) option pricing model, and modern parametric option pricing models in general, assume that a single unique price for the underlying instrument exists, and that it is the mid‐ (the average of the ask and the bid) price. In this article the authors consider the Financial Times and London Stock Exchange (FTSE) 100 Index Options for the time period 1992–1997. They estimate the ask and bid prices for the index, and show that, when substituted for the mid‐price in the BS formula, they provide superior option price predictors, for call and put options, respectively. This result is reinforced further when they .t a non‐parametric neural network model to market prices of liquid options. The empirical .ndings in this article suggest that the ask and bid prices of the underlying asset provide a superior fit to the mid/closing price because they include market maker's, compensation for providing liquidity in the market for constituent stocks of the FTSE 100 index. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:471–494, 2007     

PRICE SETTING OF MARKET MAKERS: A FILTERING PROBLEM WITH ENDOGENOUS FILTRATION

This paper studies the price‐setting problem of market makers under risk neutrality and perfect competition in continuous time. The classic approach of Glosten–Milgrom is followed. Bid and ask prices are defined as conditional expectations of a true value of the asset given the market makers' partial information that includes the customers' trading decisions. The true value is modeled as a Markov process that can be observed by the customers with some noise at Poisson times. A mathematically rigorous analysis of the price‐setting problem is carried out, solving a filtering problem with endogenous filtration that depends on the bid and ask price processes quoted by the market maker. The existence and uniqueness of the bid and ask price processes is shown under some conditions.     

批发市场中电子中间商问题的分析

随着网络经济的迅速发展 ,出现了许多基于网络基础的提供信息服务的具有中介功能的电子中间商。批发市场中产品的质量存在不确定性 ,电子中间商能提高市场交易的效率 ,但物流和市场交易的分离也给市场的买卖双方带来了新的交易风险。电子中间商可以采用拍卖交易方式 ,并建立一个能降低交易风险的信用机制。信用机制的建立会促使电子市场的交易集中于高质量的产品 ,且产品的价格要高于传统市场产品价格。     

A study on the attributes involved in the hedonic pricing of Brazilian clothing

The objective of this study is to identify the weighted importance of intrinsic and extrinsic attributes. Intrinsic attributes are defined as the specific features of products. Extrinsic attributes refer to other characteristics that are also important for price composition, such as brand, store layout and services, and purchasing experiences. In a survey with 1,923 collected responses, it was possible to identify and quantify intrinsic and extrinsic influencing factors beyond price strategy in the Brazilian fashion market for blue jeans. The statistical analysis was based on the hedonic price method. The idea of expressing the price based on a series of intrinsic and extrinsic variables avoids the problem of using the regression technique. In this research, multiple linear regression and quantile regression were applied. The results show that extrinsic attributes have greater influence than intrinsic features on explaining the final market prices using log-linear and quantile regression statistical methods.     

Noise Trader Model of Agricultural Product Prices： Evidence from the Chinese Garlic Market

This paper explores the determinants of the abnormal and volatile fluctuations of China＇s agricultural product prices in recent years by examining the trading behavior of traders, especially that of irrational noise traders. We present an overlapping generations model of the garlic market in which noise traders with erroneous beliefs influence prices. Noise traders＇ beliefs create a risk in the price of agricultural products that deters rational arbitrageurs from aggressively betting against them through changing supplies in a way that enables prices to diverge significantly from fundamental values even in the absence of fundamental risk. We also show that asymmetry of supply information, low price elasticity of demand, speculative capital inflows, restricted distribution channels, distorted wholesale markets from the perspective of market mechanisms and low risk aversion, biased self-attribution, and projection bias from the perspective of investor psychology, all influence expectations of investors and increase the volatility of agricultural product prices.     

Insider Trading 2.0? The Ethics of Information Sales

The sale of faster access to financial market data has recently generated public controversy. NY Attorney General Eric Schneiderman has referred to such fast data feeds as “Insider Trading 2.0”. For example, Thomson Reuters sold the University of Michigan’s Consumer Sentiment Index to computerized trading firms 2 seconds before releasing its data to its other paying clients. This paper explores the ethical issues involved in the sale of such information. Is selling faster access ethically the same as traditional insider trading, which generally involves a breach of fiduciary duty or the use of misappropriated information? Such practices are extremely different from traditional insider trading as there is neither a breach of fiduciary duty nor misappropriation of inside information. The ethical issues are similar to other market segmentation and price discrimination issues, in which different prices are charged to different customers. The ability to price discriminate across segments can actually benefit large segments of the population who may receive lower prices because others, such as the high-speed traders, are paying more. The sale of faster access to information, especially by exchanges, raises additional ethical issues. There may be adverse effects on market quality that must be addressed. The moral distaste for the practice expressed by some stems from the seeming unfairness of a modern market structure that provides advantages to a small group of computerized traders.     

Managed futures,positive feedback trading,and futures price volatility

A major issue in recent years is the role that large, managed futures funds and pools play in futures markets. Many market participants argue that managed futures trading increases price volatility due to the size of managed futures trading and reliance on positive feedback trading systems. The purpose of this study is to provide new evidence on the impact of managed futures trading on futures price volatility. A unique data set on managed futures trading is analyzed for the period 1 December 1988 through 31 March 1989. The data set includes the daily trading volume of large commodity pools for 36 different futures markets. Regression results are unequivocal with respect to the impact of commodity pool trading on futures price volatility. For the 72 estimated regressions (two for each market), the coefficient on commodity pool trading volume is significantly different from zero in only four cases. These results constitute strong evidence that, at least for this sample period, commodity pool trading is not associated with increases in futures price volatility. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 759–776, 1999     

Cash trading and index futures price volatility

This study examines the effect of cash market liquidity on the volatility of stock index futures. Two facets of cash market liquidity are considered: (1) the level of liquidity trading proxied by the expected New York Stock Exchange (NYSE) trading volume and (2) the noise composition of trading proxied by the average NYSE trading commission cost. Under the framework of spline–GARCH with a liquidity component, both the quarterly average commission cost and the quarterly expected NYSE volume are negatively associated with the ex ante daily volatility of S&P 500 and NYSE composite index futures. Conversely, liquidity and noise trading in the cash market both dampen futures price volatility, ceteris paribus. This negative association between secular cash trading liquidity and daily futures price volatility is amplified during times of market crisis. These results retain statistical significance and materiality after controlling for bid–ask bounce of futures prices and volume of traded futures contracts. This study establishes empirical evidence to affirm the conventional prediction of a liquidity–volatility relationship: the liquidity effect is secular and persistent across markets. © 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:465–486, 2011     

Further analysis of the speed of response to large trades in interest rate futures

This study examines the adjustment process in the interest rate futures market following large block trades, by analyzing changes in the levels of quoted prices, bid‐ask spreads, and trading activity. Most of the adjustment in prices and spreads is complete within 12 quote revisions (approximately 70 seconds). Results suggest that block trades stimulate subsequent trading activity, as traders rush to express differences of opinion about the price implication of the block. The market response to block trades exhibits several features in common with the two‐phase response of the US treasury market to macroeconomic announcements described by Fleming, M. J. and Remolona, E. M. (1999). © 2009 Wiley Periodicals, Inc. Jrl Fut Mark 30:705–724, 2010